Employers Hang On to Perks Despite Weak Economy

By Kathy Gurchiek Oct 2, 2008
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Despite a rocky economy, a slight majority of U.S. companies are retaining employee perks, a new survey finds.

Eliminating perks and bonuses can be a risky move for employers, warns John Challenger, CEO and president of Chicago-based global outplacement and executive coaching firm Challenger, Gray & Christmas Inc.

“Companies that eliminate year-end bonuses and perks or cut them to the bone will probably discover that employee loyalty and productivity are greatly diminished,” he said in a press release.

Challenger’s firm surveyed 100 HR executives nationwide during the week of Oct. 6, 2008, on whether they plan to pull back on perks in light of a 30 percent increase in workforce reductions from a year earlier.

“The weakened economy has led to heavy downsizing,” and that can extend to bonuses and perks as well, Challenger said. Employers had announced plans to cut about 763,000 jobs through September 2008, according to his organization’s estimate.

While employees might stay put during uncertain economic times, Challenger cautioned that eliminating or drastically reducing perks might prompt workers to head for the door when the economy improves.

“Some companies learned this lesson the hard way following the 2001 recession and subsequent ‘jobless recovery’ that lasted well into 2003,” Challenger said.

According to survey findings released Oct. 20, 2008:

  • 57 percent of HR executives said their organization has retained perks.
  • 10 percent have not cut perks but are considering doing so.
  • 20 percent had to cut or eliminate perks to contain costs; slightly more than one-third of that group was compelled to do so to save jobs.
  • 50 percent plan to award year-end bonuses in 2008; 23 percent said bonuses will be about the same as in 2007.

Perks can include the company car, use of the corporate jet, extended retirement benefits, tuition reimbursement and supplemental life insurance, as well as more-personal benefits such as the $500 on takeout food that parents at Google may expense during the first three months after their child’s birth.

Some organizations offer subsidized on-site massages, cafeterias, sleep breaks, and cell phones for executive- or mid-level managers, according to CareerBuilder.com. At GoDaddy.com, the employer pays for regular team appreciation outings such as cart-racing, afternoons at the movies and hockey games.

“At a minimum, employees see [perks] as part of their compensation,” observed Peter Cappelli, director for the Center for Human Resources at the Wharton School, University of Pennsylvania. His research areas include HR practices.

“If done right, they can also signal concern and care on the part of the employer, in which case the benefit is much greater than the dollar value,” he said from Singapore in an e-mail interview with SHRM Online.

Some managers are happy to see certain perks disappear, such as on-site child care and other concierge services, because they don’t like “the idea of mixing personal life with work” and see such perks as distractions, Cappelli said.

Tread Carefully

There are low- and zero-cost perks organizations can offer that employees value, such as early dismissal on Fridays during the summer, pet-friendly offices and permitting casual work attire, Challenger noted.

In fact, slightly more than one-third (35 percent) of the HR executives Challenger surveyed said there was no need for them to cut back because the perks they offer are low-cost.

It might become difficult, though, for some companies to even provide the smallest of perks, such as free coffee, Challenger said.

Think carefully before eliminating perks, Wharton’s Cappelli advised.

“If it’s part of a program of cost-cutting, with a clear goal in mind and an end in sight for the cuts, it’s likely to focus attention on the problem and not have such a bad effect on morale.

“If [perks] just start disappearing without any explanation, it’s a bad thing for morale as people make up an explanation—typically unflattering—as to why it is happening,” Cappelli continued.

“What’s the goal, what’s the long-term effect likely to be?” he asked. After that’s been determined, “then think about how you’re going to communicate all that to the employees. If you don’t have good answers to those questions, don’t cut [the perks].”

In evaluating whether to cut perks, Challenger says, HR should get employees involved.

“At the very least, they should be open about how perks were selected for cutbacks and why. Companies also must be sensitive to disparities between the perks offered to executives and those offered to rank-and-file” employees, he said.

“It would be very difficult to justify eliminating free Starbucks coffee for employees while the top executives continue to have their gym memberships or car leases paid for by the company,” Challenger pointed out.

Also, look for ways to soften the blow when communicating the changes to employees.

If it’s too costly to continue to provide on-site fitness facilities and fully funded day care, for example, consider negotiating discounted rates with local providers, partially subsidizing the perk or offering flexible spending accounts that allow workers to set aside tax-free funds for that use.

The effect on morale rests a lot in the delivery, according to Cappelli.

“It’s probably rarely the case that perks really affect a company’s overall budget. Cutting them tends to be a symbolic exercise, suggesting to the employees that times really are tight,” he said.

“Cutting perks for execs can signal that ‘we’re all in this together.’ ”

Kathy Gurchiek is associate editor for HR News. She can be reached at kathy.gurchiek@shrm.org.

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